Borrowed $75,000 using rental home as collateral. Rental home was owned free and clear, so it seems the deductibility of the interest depends on the use of the loan proceeds as per pubs 535 and 550. About $2500 of the loan proceeds plus another $1000 for a total of $3500 was used for obtaining the loan - transfer taxes, legal fees, escrow fees, recording fees, etc.

Is the $3500 deductible? Is it investment expense offset against investment income for 2001 on form 4592? Is it to be amortized over the life of the loan and then treated as an investment expense? Is this a miscellaneous deduction on Schedule A? How is this cost treated?

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